The six-member Bimal Jalan committee was formed last year after a tussle between Modi govt and then RBI governor Urjit Patel over RBI’s reserves.

The Reserve Bank of India (RBI) logo is displayed on a gate at the central bank's headquarters in Mumbai, India| Vivek Prakash | Bloomberg

Text Size:

New Delhi: The Bimal Jalan committee, set up to decide the Reserve Bank of India (RBI)’s economic capital framework, has missed its 90-day deadline to submit the report. The first meeting of the committee was on 8 January.

The committee was formed in December after a tussle between the Modi government and then RBI governor Urjit Patel over the central bank’s reserves resulted in the latter’s departure.

Sources said the panel report, which will quantify the desirable level of reserves to be held by the central bank, is expected to be finalised only by the end of May, and will be submitted after the elections.

“We are yet to finalise the report, we are working on it. We will hold another meeting next month,” Jalan, chairman of the six-member committee and former RBI governor, told ThePrint, without divulging any details.

Rakesh Mohan, former RBI deputy governor, is the vice-chairman of the committee.

Sources said formulating the reserve ratio has not been easy for the committee, with members including Mohan and Vishwanathan not being in favour of transferring a significant portion of money to the government.

“The discussion on the quantum of transfer of a larger share of surplus funds has to be very critically delved upon as in no way can the formula dilute the autonomy of the RBI. It is not a simple exercise,” said an RBI insider on condition of anonymity.

The central bank’s total reserves as of end June 2018 stood at Rs 9.59 lakh crore.

Modi govt vs RBI

The Modi government and the central bank were involved in a major clash last year when the former sought a larger chunk of central bank reserves.

RBI’s former governor Patel vehemently resisted the government’s insistence to part with a larger chunk of its reserves, saying the move would undermine the autonomy of the central bank. The tussle eventually led to his exit.

Under Section 47 of the RBI Act, the Centre can seek a larger share of the surplus funds, but all governments so far have refrained from invoking this legal framework.

Some central bank insiders have been opposing any move to transfer larger sums of reserves to the government.

Former RBI governor Raghuram Rajan even warned that transfer of excess reserves to the government could lower the central bank’s rating.

However, noting that RBI was one of the most highly capitalised central banks in the world, former chief economic adviser Arvind Subramanian in his Economic Surveys of 2015-16 and 2016-17 had underlined the need to transfer a larger share of the central bank’s excess capital to the government.

“There is no particular reason why this extra capital should be kept with the RBI. Even at current levels, the RBI is already exceptionally highly capitalised,” the Economic Survey for FY17 said, adding the amount could be redirected towards recapitalising the cash starved public sector banks.

But Subramanian also underlined the need to maintain the autonomy of RBI.